Chapter 12

Managing the Team

Objectives

• Developing a strong corporate culture.• Finding and hiring the best people.• Dealing with firing an employee.• Dealing with a resignation.• Conflicts of interest and business ethics.• Legal issues.• Setting up a stock option agreements.

Introduction

• One of the greatest challenges entrepreneurs face is the day to day management of human resources.

• Prioritize the problems and deal with them promptly, seeking help from mentors if necessary.

• The stress will be reduced by creating a supporting culture and known employee expectations.

• One of the most important leadership tasks is to create an organization where everyone understands the core values of the organization.

Developing a strong corporate culture

• The ability to lead an organization on a mission where everyone is involved every day in moving towards clearly defined goals makes the difference between success and failure.

• A culture supporting innovation requires leadership from the very top of an organization.

• Getting it right from the start is much easier than trying to change an old, unsuitable, and deeply embedded culture.

• Cultural attributes of a successful innovative company (table 12-1, page 320) include: honesty, alignment (employee and organization), risk (employees encouraged to experiment), teams (team over individual), empowerment (employees), freedom, support (encourage new ideas), engagement, stimuli (listen to supplier suggestions), and communication (in the loop at all levels).

Finding and Hiring the Best People• It is easier to build an exciting, trusting, and supportive corporate culture

if you hire people that have values that match the organization.• In a small company one bad hire can do a lot of damage quickly.• Searching (see ad on page 321): Look for people in places where you may

find people that match the company culture. Personal networks and recommendations are best.

• Interview: Hire for cultural fit if the other skills are good. Skills can be trained, culture cannot. If in doubt, do not hire.

• Stock Options: Small companies offer stock options since they are short of cash and want to keep salaries low. Employee shares are usually between 10 to 20% of equity of company.

• Mentoring and assimilation into culture is part of the hiring process.• See table 12-2, interview guide on page 323.

Dealing with firing an employee• All good companies mishire; all great companies correct their mistakes

quickly.• Not taking appropriate action promptly is bad for the company and the

employees.• In all circumstances it is vital that the employee retain their self esteem. • Keep the discussion professional and try to maintain the level of trust

between you.• Need for firing can also be because of funding shortage, or change of

direction of the company.• Make the break clean. Do not allow the person to remain on company

premise.

Dealing with a resignation

• Try to convince the employee to stay, but do not enter in a bidding war with the new company.

• Agree on procedures: notice period.• Keep door open: if the company would really like the

employee to come back if things do not work out at the new company.

• Celebrate: office party.• Conduct exit interview: Ask for honest feedback. Explain

confidential information and non compete conditions. Ask employee name of new company.

• Analyze: What triggered the move.

Conflict of interest and business ethics

• 3 principles to resolve ethical dilemmas:• 1. The gut feeling test: stop and consider the issues

surrounding the problem.• 2. Analysis of conflicts: you have to find out the rules that

apply, and the contracts that may be in place. Then you need to analyze potential conflicts of interest.

• 3. Full disclosure: Once you understand the ethical and legal issues you will be able to determine who should be informed about the situation and its potential outcomes. This is called full disclosure. Over disclosing is better than restricting information.

Legal issues• Check with the company’s legal counsel before signing anything.• Employment agreement: Usual provisions include nondisclosure

agreement of confidential information, non compete for a period of time, and assign all inventions to the company during employment.

• Consulting agreement: If you use consultants they need to sign a work for hire agreement – otherwise the work the consultant does will become their property.

• Separation agreement: usually contain a general release protecting your company against later legal actions.

• Sales and marketing agreement: while entering into an agreement with a marketing partner – specify responsibilities of both parties.

• Confidentiality agreement: when in discussion with third parties before any agreement is made, to protect disclosures that you make.

Stock options agreement

• Incentive for keeping key employees in the company.• Incentive stock option plan where selected

employees receive options to purchase stock in the company.

• Any plan must be adopted by the board of directors and approved by the stock holders of the company.

• The plan must state the number of shares being set aside for the employees. Consult with tax and legal expert while setting up the plan.

Summary• One of the greatest challenges entrepreneurs face is the day to day management

of human resources.• Interview: Hire for cultural fit if the other skills are good. Skills can be trained,

culture cannot. If in doubt, do not hire.• Cultural attributes of a successful innovative company include: honesty, alignment

(employee and organization), risk (employees encouraged to experiment), teams (team over individual), empowerment (employees), freedom, support (encourage new ideas), engagement, stimuli (listen to supplier suggestions), and communication (in the loop at all levels).

• Check with the company’s legal counsel before signing anything.• Keep door open: if the company would really like the employee to come back if

things do not work out at the new company.• If you use consultants they need to sign a work for hire agreement – otherwise the

work the consultant does will become their property.

Home Work

• 1. What is one of the greatest challenges that entrepreneurs face?

• 2. What are the cultural attributes of a successful innovative company?

• 3. Where should you look for people to hire?• 4. What is full disclosure?• 5. Why do you need consultants to sign a work for hire

agreement?